On March 26, 2026, at 8 AM Beijing time, U.S. Treasury Secretary Scott Bessent threw out a highly provocative proposal during a public discussion—to reshape the Treasury's regulatory framework over the Federal Reserve by drawing on the model of the Bank of England. In his view, the Bank of England reform in 1997 provides a “successful example of monetary policy independence” that is worthy of reference in Washington. At this moment, the U.S. Treasury market is experiencing extreme selling pressure, with two-year yields rapidly rising, and multiple institutions have raised the probability of a U.S. economic recession to between 30% and 50%, adding a layer of real urgency to reform calls. The true conflict is no longer just whether to raise interest rates, but rather: how should the independence of the Federal Reserve be redefined in relation to the oversight boundaries set by the Treasury? This potential power restructuring will fundamentally reshape Wall Street's pricing of U.S. monetary policy.

Government bonds are being crazily sold off: The market first reacts to...

As March progresses, the U.S. Treasury market has been the first to express its stance. The two-year U.S. Treasury yield has soared sharply in a short time, with concentrated sell-offs of short-end government bonds visible on the trading floor, as transaction volumes surged while prices fell, causing the yield curve to steepen dramatically at the short end. Morgan Stanley's strategists interpret this scene as “the Treasury sell-off reflecting the market's repricing of interest rate hike expectations.” In other words, investors no longer believe in the previous narrative of a “soft landing + moderate rate cuts,” but instead are betting real money on longer periods of high interest rates or even further tightening.

In parallel with the dramatic volatility in yields, institutions have clearly raised their digital assessment of recession risks. According to reports, Moody's has increased the probability of a U.S. economic recession to 48.6%, nearly a “coin toss” split; Goldman Sachs gives a probability of 30%, which is still low given its generally optimistic outlook; Wilmington Trust has put forth a judgment of 45%, nearing Moody's pessimistic level. This set of figures, distributed between 30% and 50%, conveys a consensus: “A soft landing” is no longer the baseline scenario but the most optimistic assumption.

Amid the persistent shadow of inflation, rising recession expectations, and turmoil in the bond market, Wall Street has begun to re-examine the current policy framework and accountability mechanisms of the Federal Reserve. Over the past decade, the policy path from zero interest rates to an expansion of the balance sheet, and now to high interest rates against inflation, has caused market trust in “the rule itself” to start to wane. At this time, Bessent's proposal to redraw regulatory boundaries using the British model is viewed by many institutions as a systemic questioning of the current system: the issue is not just how much interest rates should be, but who is responsible for the consequences of interest rates and the balance sheet to what extent.

Learn from the Bank of England? The U.S. Treasury Secretary wants power...

To understand Bessent’s proposal, it is necessary to return to the historical node of the 1997 Bank of England reform. At that time, the British Treasury made clear through legislation: the Treasury sets macro goals like inflation, and under this framework, the Bank of England enjoys the operational independence of monetary policy, responsible for specific interest rate decisions and tool usage. Bessent calls this arrangement a “successful example of monetary policy independence,” as it establishes a relatively clear division of labor between political power and technical governance—the government sets the direction, and the central bank manages the throttle and brakes, while being subject to public and market scrutiny through inflation targets and periodic reporting mechanisms.

In contrast, the current U.S. model legally grants the Federal Reserve a high degree of independence, but in practical operation, the Fed is highly entangled with the Treasury, fiscal deficits, and the issuance of national debt. The huge volume of Treasury bonds needs someone to absorb it, while the expansion of fiscal deficits relies on relatively controllable financing costs, and the Federal Reserve possesses decisive influence over the yield curve and asset purchases. Nominally an “independent central bank,” it is, in reality, difficult to fully separate from fiscal and political cycles, and the boundary between power and responsibility has long been in a gray area.

Against this backdrop, Bessent's proposal to “draw on the British model” appears to be looking for a new power combination: stronger oversight from the Treasury + operational independence retained by the Federal Reserve. Specific provisions have not yet been published, but it is reasonable to infer that he is focused on giving the Treasury greater say regarding goal setting, framework design, and accountability mechanisms, while leaving the daily tool selection and timing judgment to the Fed’s professional team. This arrangement appears on the surface as “strengthening oversight,” but at a deeper level, it is rewriting who pays for out-of-control inflation, employment fluctuations, and financial stability risks.

The key market concern is: once Treasury oversight is strengthened, how will investors reassess their trust in the Federal Reserve's ability to balance the three major goals of inflation, employment, and financial stability? A stronger presence of the Treasury might enhance accountability within the system—at least one knows who to ask when something goes wrong; but it may also lead the market to doubt whether the Federal Reserve will sacrifice some “long-term stability” in exchange for short-term electoral or budget considerations when faced with political pressure and fiscal constraints. This reassessment of trust will directly reflect in the repricing of risk premiums on dollar assets.

The tug-of-war between Washington and Wall Street: independence...

From a political perspective, Washington's current anxiety over high interest rates, debt costs, and electoral pressure has been visibly manifesting in the data. High interest rates mean that federal interest expenses are constantly climbing, with each refinancing amplifying the interest burden; rising Treasury yields are reflected in the market in real-time as “investors requiring higher compensation to take on U.S. debt.” In such an environment, reforming the regulation of the Federal Reserve and giving the Treasury a greater voice in rule-making will naturally resonate within political circles—at least to explain to voters that the government is “reining in the central bank” to maintain economic stability.

From a market perspective, if the Treasury gains greater oversight, investors' worries and expectations often coexist. On one hand, funds may fear an increase in the risk of “political interference in monetary policy”—interest rate decisions are more likely to fluctuate with electoral cycles, undermining the credibility of long-term inflation targets. On the other hand, for institutions that have experienced multiple rounds of policy “surprises,” a clearer accountability framework and more goal communication led by the Treasury may also enhance the predictability and interpretability of policy paths, reducing the uncertainty premium associated with “black box decisions.”

The potential paths of this game cannot avoid the interests and bottom lines of Congress, the White House, and the Federal Reserve. Congress holds the power of legislation and budgeting, naturally wishing to constrain and supervise the Federal Reserve through institutional design; the White House, under electoral pressure, wants to enjoy the short-term prosperity brought by loose monetary policy while avoiding accusations of crude interference with the central bank; the Federal Reserve will vigorously defend its professional authority and operational space, wary of being seen as the “executive branch” of the Treasury. So far, reports have clearly indicated that the Federal Reserve has not formally responded to specific reform proposals, and this silence itself amplifies external imaginations about the direction of the final plan.

On a short-term emotional level, the bond market and dollar assets will likely prioritize risk pricing on "disturbing the Fed's cheese". Treasury yields are highly sensitive to any signals that undermine central bank independence: if investors believe that future inflation targets may be diluted by political compromise, long-term yields could be forced to embed higher risk premiums; conversely, if the market interprets this as “increased accountability and more transparent policies,” a window for spread compression may emerge after short-end volatility. The dollar exchange rate will be pulled back and forth between “U.S. institutional resilience” and “rising policy uncertainty” narratives until the contours of reform become clearer.

Comparison of the UK and South Korea: Central bank reform...

The experience of the Bank of England provides a comparable sample for the current discussion. Since the 1997 reform, the model of “clear objectives + operational independence” has been stably operational for over twenty years, gradually embedding the inflation target at the core of market expectation management. Inflation reports, meeting minutes, and forward guidance have become standard tools, leading the market to focus not only on a single interest rate decision but on an entire set of predictable decision-making logic for pricing. Although the UK has also experienced financial crises and inflation fluctuations, there is broad consensus that this framework has enhanced the credibility of monetary policy and reduced communication costs.

In parallel, the functions of central banks are also rapidly expanding globally. Research reports mention that the Bank of Korea is hiring 10 analysts for the cryptocurrency industry and is advancing a CBDC-related reform experiment called the “Han River Project". This action at least signals two things: first, digital assets and related technologies are now seen as part of macro financial stability and payment systems; second, central banks are no longer merely traditional “interest rate decision institutions” but are evolving into digital finance and technology regulatory hubs.

If we place the paths of the United States, the United Kingdom, and South Korea on the same coordinate system, we can observe several common changes in central banks during turbulent times: on one hand, there is a restructuring of governance and accountability frameworks—such as the target system in the UK or the possible redistribution of regulatory power in the U.S.; on the other hand, there is a constant refreshing of business boundaries and toolboxes—such as South Korea including cryptocurrencies and CBDCs within the central bank's purview. The redistribution of regulatory power and the expansion of functional roles are fundamentally addressing the same issue: traditional monetary policy tools have struggled to bear the stabilizing role faced with high debt, global capital flows, and digital shocks.

In this proposal for reforming the Federal Reserve, cryptocurrencies and digital assets have not been explicitly included in the discussions, but based on the practices of central banks in countries like South Korea, it can be inferred that they will inevitably be incorporated into the regulatory landscape of central banks in the future. Whether as part of payment and settlement infrastructure or as new variables affecting cross-border capital flows and financial stability, digital assets are unlikely to remain long alienated from the monetary and regulatory systems. Bessent's vision of a “British-style” reform, if truly implemented, will inevitably extend its spillover effects into this domain.

If the Federal Reserve is "Britishized,"...

In the face of looming recession clouds and severe fluctuations in the Treasury market, Bessent's proposed British-style reform reflects not just a transient dissatisfaction with policy, but a systemic questioning of the current distribution of power and responsibility within the Federal Reserve. The market is no longer satisfied with merely discussing whether the federal funds rate should rise by 25 basis points again, but is beginning to inquire: when the costs of high inflation and high interest rates become apparent, who is institutionally responsible for the policy paths taken over the past decade? The reason the British model is repeatedly brought up is that it provides a structural answer to some extent: “goals belong to the Treasury, operations belong to the central bank, and accountability is traceable.”

In the medium to short term, merely discussing the possibilities of reform is enough to amplify the market's sense of uncertainty regarding policy paths. Treasury yields, dollar exchange rates, and risk asset valuations will oscillate between expectations of “is central bank independence being weakened” and “will the Treasury intervene more actively.” Meanwhile, public opinion pressure will cause the Federal Reserve and the Treasury to communicate their respective boundaries more clearly to the market: who sets the goals, who holds accountability, and who has the final decision-making authority in times of crisis—if these questions remain unresolved for a long time, they will themselves evolve into new sources of risk.

From a longer cycle perspective, once there is a substantial adjustment in the regulatory framework, the global pricing logic for dollar assets and the independence of U.S. monetary policy will be rewritten. The “risk-free” attribute of U.S. Treasuries and the dollar's anchoring position in the global reserve system partly rely on trust in the Fed's professionalism and relative detachment from political short-termism; however, whether a new model that emphasizes Treasury oversight and accountability will strengthen this trust or lead the market to demand higher risk compensation is still an open question. What is certain is that traditional finance and digital finance cannot stand on the sidelines: the former will directly reflect on bonds, exchange rates, and equity valuations, while the latter will feel indirect shocks as the central banks expand regulatory horizons and reshape rules.

Regardless of where the reform ultimately leads, the debate surrounding “whether the Federal Reserve should be Britishized” has already pulled monetary policy back to the forefront of institutional design and political economic games, rather than just a set of technical parameters. For all funds participating in the pricing of global assets, what truly needs tracking may no longer just be the wording of the next interest rate statement, but where the invisible boundary of power between the Federal Reserve and the Treasury will be drawn in the coming years.

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